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EMC Reports Third-Quarter 2009 Financial Results
Revenue Ahead of Company Expectations
By: Yeshim Deniz
Oct. 22, 2009 08:45 AM
EMC Corporation (NYSE: EMC), the world leader in information infrastructure solutions, today reported third-quarter 2009 consolidated revenue that exceeded company expectations for the quarter. The company achieved third-quarter revenue of $3.52 billion, an increase of 8% compared with the second quarter of 2009. The results exceeded previous company outlook of 4% to 5% sequential revenue growth. Third-quarter GAAP net income attributable to EMC reached $298.2 million, an increase of 45% sequentially and GAAP diluted earnings per share were $0.14, an increase of 40% sequentially. Third-quarter 2009 non-GAAP(1) net income attributable to EMC increased 34% sequentially, reaching $480.3 million or $0.23 per diluted share, an increase of 28% sequentially.
Third-quarter consolidated revenue of $3.52 billion declined 5% compared with the year-ago period. Third-quarter 2009 GAAP net income attributable to EMC compares with $393.4 million or $0.19 per diluted share for the third quarter of 2008 and third-quarter 2009 non-GAAP net income attributable to EMC compares with $510 million or $0.24 per diluted share achieved in the third quarter of 2008.(2)
In the third quarter, EMC generated operating cash flow of $888 million and free cash flow of $745 million and ended the quarter with cash and investments of $8.4 billion. Year to date, EMC has generated operating cash flow of $2.3 billion and free cash flow of $1.8 billion.
Joe Tucci, EMC Chairman and Chief Executive Officer, said, "I am very pleased with EMC's solid financial performance in a challenging economic climate. While remaining closer than ever to customers, we made additional progress optimizing our cost structure, expanded our product portfolio, strengthened our partner ecosystem and positioned EMC to capitalize on four of the higher-growth, multi-billion-dollar market opportunities around fully virtualized data centers, cloud computing, virtualized desktops and clients, and next-generation backup and recovery. I am extremely proud of the EMC and VMware people around the world who achieved these results."
Commenting further, Tucci said, "Customers are signaling more comfort spending their IT budgets, which gives EMC confidence in our ability to perform well and achieve our full-year 2009 targets. We are strategically aligned with the major technology shifts and well positioned to play a pivotal role in the IT industry for the next decade."
David Goulden, EMC Executive Vice President and Chief Financial Officer, said, "EMC achieved solid sequential revenue and profit growth while continuing to generate strong free cash flow. Combined with a continued disciplined focus on cost control, this helped EMC deliver improved gross and operating margins, highlighting the resilience of our financial model and our crisp execution. We remain committed to driving growth and operating leverage through our business, while continuing to invest in strategic growth opportunities to further extend EMC's market leadership."
Third-Quarter Business Highlights
EMC's Information Infrastructure business for the third quarter - comprising product and services revenue from Information Storage, RSA Security, and Content Management and Archiving - reached $3.03 billion, an increase of 8% sequentially. The Information Infrastructure business was driven by strong sequential growth of the market-leading EMC Symmetrix high-end storage systems including strong adoption of the new EMC Symmetrix V-Max line, EMC next-generation backup and recovery solutions and EMC Celerra unified storage systems. Further third-quarter highlights included customer demand for EMC's RSA information security solutions, consumer and small business-focused Iomega products, content management and archiving solutions, and EMC's broad consulting and professional services portfolio.
VMware (NYSE: VMW), which is majority-owned by EMC, contributed third-quarter revenue of $489 million.
EMC consolidated third-quarter revenue from the United States reached $1.90 billion, up 13% sequentially, and represented 54% of total third-quarter revenue. Revenue from EMC's operations outside of the United States reached $1.62 billion, up 3% sequentially, and represented 46% of total third-quarter revenue.
(1) Items excluded from the non-GAAP results are gains on Data Domain and SpringSource common stock, restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization for the third quarter of 2009 and restructuring charge, special income tax benefit, stock-based compensation expense and intangible asset amortization for the third quarter of 2008. See attached schedules for reconciliation of GAAP to non-GAAP.
(2) The results for 2008 have been adjusted to give effect to the adoption of authoritative guidance relating to non-controlling interests and the accounting for convertible debt instruments.
EMC, Celerra, Symmetrix and V-Max are registered trademarks of EMC Corporation. RSA is a registered trademark of RSA Security Inc. VMware is a registered trademark of VMware, Inc. Iomega is a registered trademark of Iomega Corporation. Data Domain is a registered trademark of Data Domain, Inc. SpringSource is a registered trademark of SpringSource, Inc. All other trademarks used are the property of their respective owners.
This release contains "forward-looking statements" as defined under the Federal Securities Laws. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in information technology spending; (iii) our ability to protect our proprietary technology; (iv) risks associated with managing the growth of our business, including risks associated with acquisitions and investments and the challenges and costs of integration, restructuring and achieving anticipated synergies; (v) fluctuations in VMware, Inc.'s operating results and risks associated with trading of VMware stock; (vi) competitive factors, including but not limited to pricing pressures and new product introductions; (vii) the relative and varying rates of product price and component cost declines and the volume and mixture of product and services revenues; (viii) component and product quality and availability; (ix) the transition to new products, the uncertainty of customer acceptance of new product offerings and rapid technological and market change; (x) insufficient, excess or obsolete inventory; (xi) war or acts of terrorism; (xii) the ability to attract and retain highly qualified employees; (xiii) fluctuating currency exchange rates; (xiv) litigation that we may be involved in; and (xv) other one-time events and other important factors disclosed previously and from time to time in EMC's filings with the U.S. Securities and Exchange Commission. EMC disclaims any obligation to update any such forward-looking statements after the date of this release.
Use of Non-GAAP Financial Measures
This release contains non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of EMC's performance or liquidity, should be considered in addition to, not as a substitute for, measures of EMC's financial performance or liquidity prepared in accordance with GAAP. EMC's non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how EMC defines its non-GAAP financial measures in this release.
Where specified in the accompanying schedules for various periods entitled "Reconciliation of GAAP to Non-GAAP," certain items noted on each such specific schedule (including, where noted, amounts relating to gains on Data Domain and SpringSource common stock, restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization, special income tax benefit and restructuring charge) are excluded from the non-GAAP financial measures.
EMC's management uses the non-GAAP financial measures in the accompanying schedules to gain an understanding of EMC's comparative operating performance (when comparing such results with previous periods or forecasts) and future prospects and excludes the above-listed items from its internal financial statements for purposes of its internal budgets and each reporting segment's financial goals. These non-GAAP financial measures are used by EMC's management in their financial and operating decision-making because management believes they reflect EMC's ongoing business in a manner that allows meaningful period-to-period comparisons. EMC's management believes that these non-GAAP financial measures provide useful information to investors and others (a) in understanding and evaluating EMC's current operating performance and future prospects in the same manner as management does, if they so choose, and (b) in comparing in a consistent manner the Company's current financial results with the Company's past financial results.
This release also includes disclosures regarding free cash flow which is a non-GAAP financial measure. Free cash flow is defined as net cash provided by operating activities less additions to property, plant and equipment and capitalized software development costs. EMC uses free cash flow, among other measures, to evaluate the ability of its operations to generate cash that is available for purposes other than capital expenditures and capitalized software development costs. Management believes that information regarding free cash flow provides investors with an important perspective on the cash available to make strategic acquisitions and investments, repurchase shares, service debt and fund ongoing operations. As free cash flow is not a measure of liquidity calculated in accordance with GAAP, free cash flow should be considered in addition to, but not as a substitute for, the analysis provided in the statement of cash flows.
All of the foregoing non-GAAP financial measures have limitations. Specifically, the non-GAAP financial measures that exclude the items noted above do not include all items of income and expense that affect EMC's operations. Further, these non-GAAP financial measures are not prepared in accordance with GAAP, may not be comparable to non-GAAP financial measures used by other companies and do not reflect any benefit that such items may confer on EMC. Management compensates for these limitations by also considering EMC's financial results as determined in accordance with GAAP.
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